STOCK EXCHANGE PRACTICES HEARINGS BEFORE A SUBCOMMITTEE OF THE COMMITTEE ON BANKING AND CURRENCY UNITED STATES SENATE SEVENTY-SECOND CONGRESS SECOND SESSION ON S. Res. 84 and S. Res. 239 RESOLUTIONS TO THOROUGHLY INVESTIGATE PRACTICES OF STOCK EXCHANGES WITH RESPECT TO THE BUYING AND SELLING AND THE BORROWING AND LENDING OF LISTED SECURITIES THE VALUES OF SUCH SECURITIES AND THE EFFECTS OF SUCH PRACTICES PART 5 (INSULL) FEBRUARY 15, 16, AND 17, 1933 Printed for the use of the Committee on Banking and Currency UNITED STATES GOVERNMENT PRINTING OFFICE 119852 WASHINGTON : 1933 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis COMMITTEE ON BANKING AND CURRENCY PETER NORBECK, South Dakota, Chairman SMITH W. BROOKHART, Iowa. ’ DUNCAN U. FLETCHER, Florida. PHILLIPS LEE GOLDSBOROUGH, Maryland. CARTER GLASS, Virginia. JOHN G. TOWNSEND, Jb ., Delaware. ROBERT F. WAGNER, New York. FREDERIC C. WALCOTT, Connecticut. ALBEN W. BARKLEY, Kentucky. JOHN J. BLAINE, Wisconsin. ROBERT J. BULKLEY, Ohio. ROBERT D. CAREY, Wyoming. THOMAS P. GORE, Oklahoma. JAMES E. WATSON, Indiana. EDWARD P. COSTIGAN, Colorado. JAMES COUZENS, Michigan. CORDELL HULL, Tennessee. FREDERICK STEIWER, Oregon. ROBERT R. REYNOLDS, North Carolina. Julian W. Blount, Clerk S ubcommittee o n S e n a t e R e s o l u t i o n s 84 a n d 239 PETER NORBECK, South Dakota, Chairman JOHN G. TOWNSEND, Jb., Delaware. DUNCAN U. FLETCHER, Florida. JOHN J. BLAINE, Wisconsin. CARTER GLASS, Virginia. JAMES COUZENS, Michigan. EDWARD P. COSTIGAN, Colorado. II Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis CONTENTS Statement of— Page Broeksmit, John S., vice president, Harris Trust & Savings Bank, Chicago, 111_____________________________________________________ 1742 Davis, Paul H., president Chicago Stock Exchange________________ 1566 Dawes, Charles G., Central Republic Bank & Trust Co____________ 1529 Insull, jr., Samuel_________ '________________________________________ 1397 Insull, jr., Samuel (resumed)______________________________________ 1434 Insull, jr., Samuel (resumed)_______________________________________ 1501 O’Keefe, John F ___________________________________________________ 1499 Stilwell, Abner J., vice president, Continental-Illinois National Bank & Trust Co., Chicago, 111_______________________________________ 1728 Stuart, Harold L., president Halsey, Stuart & Co., Chicago, 111____ 1589 Stuart, Harold L., president Halsey, Stuart & Co., Chicago, 111. (resumed)_______________________________________________________ 1642 Timmerman, Louis F., assistant vice president, Central Hanover Bank & Trust Co., New York City______________________________ 1544 Traylor, Melvin A., president First National Bank, Chicago, 111____ 1677 Tyler, Eduard M., certified public accountant, Washington, D .C___ 1688 Young, Owen D., chairman of the board of directors General Electric Co______________________________________________________________ 1507 in Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis STOCK EXCHANGE PRACTICES WEDNESDAY, FEBRUARY 15, 1933 U n it e d S t a t e s S e n a t e , S ubcommittee o f C o m m it t e e o n B a n k in g a n d C u r r e n c y , Washington, D. C. The subcommittee met, pursuant to call, at 10 o’clock a. m. in room 301, Senate Office Building, Senator Peter Norbeck presiding. Present: Senators Norbeck (chairman), Couzens, Townsend, Blaine, Fletcher, and Costigan. Present also: Senators Brookhart and Walcott. Further present: Ferdinand Pecora, special counsel to the com­ mittee; Julius Silver and James B. McDonough, jr., associate counsel to the committee. The C h a ir m a n . The committee will come to order. Mr. Pecora, who will be your first witness? Mr. P e c o r a . Samuel Insull, jr., will please come forward and take * seat at the table opposite the committee reporter. The C h a ir m a n . Mr. Insull, you will stand up and be sworn. You do solemnly swear that you will tell the truth, the whole truth, and nothing but the truth, regarding the matter now under investigation by the committee, so help you God? Mr. I n s u l l . Yes, sir; I do. The C h a ir m a n . Y ou may take a seat. TESTIMONY OF SAMUEL INSULL, JR., 72 W. ADAMS STREET, CHICAGO, ILL. The C h a ir m a n . Y ou may proceed, Mr. Pecora. Mr. P e c o r a . Mr. Insull, will you give your full name and address to the committee reporter? Mr. I n s u l l . Samuel Insull, jr., 72 West Adams Street, Chicago. That is my business address. Mr. P e c o r a . What is your home address? Mr. I n s u l l . 1242 Lake Shore Drive, Chicago. Mr. P e c o r a . Are you connected with a corporation called Insull Utility Investments (Inc.)? Mr. I n s u l l . I was, sir, up to the time of the receivership, and still hold a nominal office in the corporate entity. Mr. P e c o r a . When did you become connected with that corpora­ tion originally? Mr. I n s u l l . I was elected a vice president at or shortly after its formation in December, 1928, and subsequently was elected presi­ dent. The exact date of my election as president I do not recall. Mr. P e c o r a . About w h e n w as it? 1397 Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis 1398 STOCK EXCHANGE PEACTICES Mr. I n stjll. The record will show, but offhand I should say some time in 1930. Mr. P e c o r a . What month, do you recall? Mr. I n stjll. I would say about May, but that is just the best recollection that I have. Mr. P e c o r a . When was that corporation organized? Mr. I n stjll. It was organized either in December of 1928 or January of 1929. Mr. P e c o r a . And you became vice president at the outset? Mr. I n stjll. Yes, sir. Mr. P e c o r a . Who were the other executive officers of that cor­ poration at the outset? Mr. I n stjll. Samuel Insull, president, and------ Mr. P e c o r a (interposing). Is that your father? Mr. I n s u l l . Yes, sir. Martin J. Insull, vice president, and------ Mr. P e c o r a (interposing). Is that your uncle? Mr. I n s u l l . Yes, sir. Philip J. McEnroe, treasurer, and I think secretary; John F. O’Keefe, either secretary or assistant secretary depending upon whether McEnroe occupied both offices, secretary and treasurer, or not. Senator F l e t c h e r . And yourself? Mr. I n s u l l . Yes; as one of the vice presidents. Mr. P e c o r a . What business relationship, if any, did Mr. O’Keefe bear to your company? Mr. I n s u l l . I just said what I thought it was. Mr. P e c o r a . Well, what business relationship, if any, did Mr. O’Keefe bear to your father? Mr. I n s u l l . He was his private secretary. Mr. P e c o r a . And what business relationship, if any, did Mr. McEnroe bear to your father? Mr. I n s u l l . I suppose you would call him his bookkeeper. But I do not mean to imply that he was merely a clerk. Mr. P e c o r a . D o you know how long Mr. O’Keefe had been your father’s private secretary before the incorporation of Insull Utility Investments (Inc.)? Mr. I n s u l l . I entered business in 1922, and I think he was either his private secretary then or became so within a year or two, or cer­ tainly since 1925, or earlier. Mr. P e c o r a . What was the form of organization of the corporation called Insull Utility Investments (Inc.)? Mr. I n s u l l . Do you mean the personnel? Mr. P e c o r a . What business was it organized to transact? Mr. I n s u l l . It was organized, and it had charter powers to buy, hold, and trade in securities generally. The announced purpose was mainly to acquire and hold securities of the Commonwealth Edison Co., Peoples Gas Light & Coke Co., Public Service Co. of Northern Illinois, Middle-West Utilities Co., and their affiliated companies, but it did not necessarily restrict itself to such investments. Mr. P e c o r a . Would you say, in other words, that the business it was organized to do was in the nature of an investment trust business? Mr. I n s u l l . Yes, sir. Mr. P e c o r a . And an investment trust designed to deal in public- utility company securities? M r . I n s u l l . In the main; yes, sir. Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis STOCK EXCHANGE PRACTICES 1399 Mr. P e c o r a . In the main. Mr. I n s u l l . Yes, sir. Mr. P e c o r a . A s a matter of fact, in the course of the operations conducted by that company from the time of its incorporation, that is what it did? Mr. I n s u l l . Yes, sir; in the main. Mr. P e c o r a . What was the capital structure of the corporation at the outset? Mr. I n s u l l . I can not from my direct recollection, or from the personal notes that I have, testify exactly, but I think the record will show it.